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Clients taken in by disgraced ex-RBC advisor

When I read recently that former RBC Dominion Securities stockbroker Henry Cole was fined $5 million for running a Ponzi scheme and
sentenced to two and a half years in prison
for fraud, bells went off. It turns out he was the guy we hired to invest our money when we received a modest inheritance from my mother-in-law in the mid-90s.

We met him when he was working for one of the big banks and followed him as he made several moves, ending up as President of Rampart Securities. Our accounts were frozen in 2001 when Rampart Securities was shut down by the Investment Dealers Association after accusations of numerous breaches of client due diligence, supervision and compliance with regulations. Fortunately, we eventually we got all of our investments back.

As a result of the Rampart debacle, Cole was fine $125,000 by the Investment Dealers Association and was banned from senior jobs in the financial industry for 10 years. Nevertheless, he was hired in 2005 by RBC as an investment advisor.

After joining RBC, Cole set up a classic Ponzi scheme, inducing clients to provide him with funds to invest in a “private fund” and retaining the money for his own use. Then he made payments to his investors on a monthly basis and falsely represented those amounts as interest on investments in the private fund, when in fact they were a return of the client’s own principal.

To facilitate his scheme he created promissory notes on which he forged the name of a Woodbridge lawyer who had no knowledge about the notes, the clients or their supposed investments.

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In one case, a widow in her 80s with the agreement of her children transferred over $2 million into RBC investment accounts for investment in the private fund which Cole represented as paying an 8 to 9 per cent return based on real estate investments.

Cole misappropriated close to $5 million (plus almost $400,000 paid in fictitious interest payments) from his RBC clients. He ran the funds through the accounts of a separate company called Trinity Real Estate Partners Inc, of which he was the sole officer, director and shareholder. Not surprisingly, he did not disclose his side activities to RBC.

He admitted to his wrongdoing and agreed to a
fine of $5.02 million,
a permanent ban from registration with the Investment Industry Regulatory Organization of Canada and $10,000 costs. However I can’t imagine that he will be paying the fine anytime soon because both Cole and Trinity declare bankruptcy early last year and in mid-January Cole was sentenced to 21/2 years in prison for criminal fraud.

To their credit, RBC substantially reimbursed the clients whose funds were misappropriated by Cole.

I can’t understand why RBC let this fox back into the henhouse after he already had his hands slapped once for unacceptable behaviour at Rampart.

I guess the lessons are:

If it sounds too good to be true, it probably is, and

Do your research carefully before handing your money over to anyone.

But like us, I’ll bet that Cole’s clients at RBC felt they had every reason to trust him because he had been vetted by one of the country’s major financial institution.

If in spite of all of your due diligence, you think you may have been the victim of fraud or other illegal or unethical behaviour by an investment advisor or the company he works for, contact the
Investment Industry Regulatory Organization
of Canada. You can file a report using their
complaints service
or contact them directly by phone at
1-877-442-4322.

Sheryl Smolkin is a Toronto lawyer, writer and editor. She can be contacted through her
website
or you can follow her on Twitter @SherylSmolkin.

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